Property investors are looking North according to HSBC, as the top three cities with the best rental returns are Manchester, Kingston upon Hull and Blackpool.
Manchester had only a small increase in average house prices (up from £104,244 in 2014 to £108,870) but has maintained strong rental demand.
Annual rents in Manchester have risen 4% from £8,316 in 2014 to £8,628. It has one of the largest student populations in Europe; and more than a quarter of housing stock is privately rented (26.85%), the largest proportion of all locations.
Both Kingston upon Hull and Blackpool have entered the top three for the first time thanks to low average property prices and strong rental demand. With typical house prices of £69,135 and £79,654 respectively, Hull and Blackpool require the lowest initial investment of all locations researched.
However, Suffolk offers the fastest-growing rental returns. Year-on-year growth in rental yield is 38.7% in Forest Heath, Suffolk, where the average house price increased from £158,925 in 2014 to £171,322. Average annual rents rose 49% over the same period. Typical annual rents in Forest Heath have increased from £8,316 to £12,432, a rise of £4,116.
Tower Hamlets is the only London location in the top BTL hotspots for annual yield growth. The area covers much of the redeveloped Docklands area including Canary Wharf, and is the only London area that has seen positive growth in average rental yields (1.20%). Annual rents in this area have increased by 18% or £3,072, just outpacing a 16% rise in house prices over the same period (from 414,461 to 481,745).
Tracie Pearce, head of mortgages at HSBC, said: “Our research shows buy-to-let remains an attractive option for investors, but it’s important they focus on locations where rents have outpaced house prices. This means not just looking at large towns and cities, but also commuter areas and those with high rental demand and concentrated employment such as a hospital or university nearby. Almost a third of areas in our report have seen a year-on-year growth in yield and almost half of the areas have achieved yields above 5%.
“Buy-to-let is a big investment and shouldn’t be taken lightly; but with the right research landlords can feel confident that they can achieve good returns around the UK.”